Annual reports are no longer staid and drab statements of profit and loss account. Statements of a company’s financial health have morphed into snazzy, glossy documents that go beyond the dry figures to provide a glimpse into its background, ambitions, work culture, employment policies and social responsibilities.
The new crop is conspicuous with its innovative design and packaging that will inspire one to keep it for years. From reports designed like an eveninger (Dabur India Ltd’s 2005-06 annual report) to one with a collage of a multicultural face (Hikal’s 2005-06 report), annual reports are making a new statement. Hikal’s report received the gold award from the Association of Business Communicators of India, the apex body of professionals in business communications.
Some companies have even stretched sections on corporate responsibility to include issues of global warming, environment and sustainability in their reports. FMCG major ITC Ltd’s annual report boasts of its “triple bottom line” contribution to the economic, social and environmental capital of the country.
There are others who design reports based on themes. For instance, oil manufacturing company KS Oils Ltd designed their last year’s annual report on a games and sports theme, while Housing Development Finance Corp. Ltd (HDFC Ltd) patterned its report around the concept of “reaching out” to mark the company’s milestone of achieving Rs1 lakh crore in home-loan approvals. But what has led to this glossy makeover, which can cost a company anything between Rs100 and Rs300 per copy for a deluxe version and Rs25-75 for an ordinary version? What is the value proposition?
Experts say there are tangible benefits of a good annual report. It is not only the most important means to reach out to shareholders, but also to attract potential investors. Corporate governance also gets communicated better, they say. “Companies are increasingly not only looking at annual reports as a mere statutory requirement, but also as a means to communicate their strategies and future direction to the stakeholder,” says Renu Sud Karnad, executive director, HDFC Ltd. The housing-finance company has been receiving gold and silver category awards conferred by the Institute of Chartered Accountants of India (ICAI) for its annual reports for 13 consecutive years.
All the fuss about annual reports is apparently because of the shift in companies’ focus from the shareholder to the stakeholder, say observers. Rajan Varma, CFO, Dabur India Ltd, explains: “Balance sheets, till now, only catered to the current shareholders. However, companies are now waking up to the potential an annual report holds in attracting prospective shareholders.”
Apart from attracting potential investors and analysts, annual reports also help in drawing future hires, say human resource managers. “We have been distributing our annual reports during campus hiring. It helps candidates know what we are all about at one glance,” says Prabir Jha, senior vice-president, Dr Reddy’s Laboratories Ltd, adding: “A good annual report goes a long way in articulating the strategies, capabilities and goals of a company, which gives a great opportunity to attract more investors both at home and abroad.”
In the light of this paradigm shift, the hitherto ignored section of the annual report, management, discussion and analysis (MD&A), has gained tremendous significance.
The format of the financials, however, remains the same as per the guidelines set out by the Companies Act, the Securities and Exchange Board of India Act and the Chartered Accountants Act. The rest of it is voluntary. It is this section that is being leveraged to the utmost. Earlier, the MD&A was not used properly. “At best, you had the chairman’s speech with pictures of board members and some insipid text along with it,” says Varma.
All that is, however, changing. More and more companies are getting professionals to do it for them. The spending on annual reports has also gone up for companies. For Dabur, in the last couple of years, the kitty has seen a “year-on-year increase of 15-20% because of the increasing importance of annual reports and other factors such as rising inflation and number of shareholders”, says Varma. And this rising demand has spawned an industry in itself with a number of companies outsourcing part or entire work associated with annual reports. “Demand for better reports has gone up considerably,” says Falguni Gokhale of DesignDirections, which won the BusinessWorld Award for Design for the fourth time in 2006 and does annual reports of companies such as Bharat Forge Ltd, Tata Research Development & Design Centre, KPIT Cummins Infosystems Ltd and Glenmark Pharmaceuticals Ltd, among others.
Market watchers estimate the current size of the annual- report production industry, (which includes printing, and creative work such as photography, illustration and content) at Rs1,300-1,500 crore.
The market is growing, they say. “Our annual-report work has increased three-fold in the past couple of years,” says Gokhale. Salaries have also gone up significantly. Senior designers get paid anywhere between Rs20,000 and Rs50,000 per month, while researchers and writers, depending on experience and expertise, get paid in the range of Rs25,000-60,000. The industry comprises firms that mostly do creative work and printers such as Thomson Press, Repro India Ltd and Silverpoint Press Pvt. Ltd. While most knowledge process outsourcing companies (KPOs) provide a part of these services, there are companies such as Dickenson Intellinetics, Netscribes (India) Pvt. Ltd and DesignDirections, which do turnkey projects. And there’s good money, too. Companies charge anything between Rs2 lakh and Rs7 lakh for a turn-key project.
Regulatory changes have put an increasing emphasis on the narrative of annual reports to increase investor understanding. Manoj Saha, managing editor, Dickenson Intellinetics, is among those who believe the narrative is a vital element of any report. “Numbers can talk about a company’s tangible assets, but only a good narrative can capture a company’s intangible assets such as the brand or people.” Agrees Gokhale, who says: “The business writing that goes in the report is very important. In order to design the report, we work closely with the finance head and the company’s chief executive to understand the company and its performance and capabilities better.”
However, the latest Sebi regulation announced on 27 April, which allows listed companies to send abridged annual reports to their shareholders, will affect the printing industry, say observers. “The latest regulation will definitely impact the printing side of the business from the next financial year. The good thing is that it means reduced costs for companies and, hopefully, the money saved will go into better quality of work.”
In future, the online space is going to become more important with companies looking at innovative ways to put up online annual reports.